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Issues Involved:
1. Tax liability of profits earned by the assessee in Indian States under the Income-tax Act and the Excess Profits Tax Act. 2. Competency of the Tribunal to decide on grounds not raised by the Commissioner in the grounds of appeal. 3. Powers of the Appellate Tribunal to permit new grounds in the appeal. 4. Apportionment of income between Indian States and British India. 5. Inclusion of income for rate purposes in the case of a company. Issue-wise Detailed Analysis: 1. Tax liability of profits earned by the assessee in Indian States under the Income-tax Act and the Excess Profits Tax Act: The assessee, an insurance company, earned profits of Rs. 65,203 and Rs. 1,27,836 from non-life assurance business in Indian States. The Income-tax Officer concluded these profits arose in British India and were taxable. However, the Appellate Assistant Commissioner held that the income accrued in Indian States and was not liable to tax. The Tribunal upheld this view but directed reconsideration for apportionment. The High Court affirmed that the Tribunal correctly remanded the issue to the Appellate Assistant Commissioner to determine apportionment, confirming the income accrued in Indian States. 2. Competency of the Tribunal to decide on grounds not raised by the Commissioner in the grounds of appeal: The Tribunal's decision to consider apportionment, although not raised by the Commissioner in the grounds of appeal, was challenged. The High Court noted that the Commissioner did urge this point before the Tribunal and the assessee had sufficient notice. The Court emphasized that the Tribunal, like an appellate court, can permit new grounds if leave is granted and the other party is given an opportunity to contest. The Tribunal's competence to decide on new grounds was upheld, provided procedural fairness was maintained. 3. Powers of the Appellate Tribunal to permit new grounds in the appeal: The High Court analyzed the powers of the Tribunal under section 33(4) of the Income-tax Act and rule 12 of the Appellate Tribunal Rules, which allow the Tribunal to permit new grounds if leave is granted and the affected party has a chance to be heard. The Court referenced several judgments affirming that an appellant can raise new grounds with leave, and the Tribunal can decide on these grounds. The Tribunal's decision to consider apportionment, despite it not being in the original grounds of appeal, was within its powers. 4. Apportionment of income between Indian States and British India: The Tribunal directed the Appellate Assistant Commissioner to consider if any process for earning the income took place in British India, necessitating apportionment between Indian States and British India. The High Court supported this directive, clarifying that the Appellate Assistant Commissioner must determine if apportionment is applicable, adhering to the finding that the income accrued in Indian States. 5. Inclusion of income for rate purposes in the case of a company: The Department's contention that the profits should be included in the total income of the company for rate purposes was dismissed. The High Court clarified that for companies, which are taxed at a flat rate, the inclusion of these sums for rate purposes was irrelevant. The sums are either taxable or not, and if taxable, they would be taxed at the company's flat rate. Conclusion: The High Court answered the relevant questions affirmatively, supporting the Tribunal's decision to remand the issue of apportionment to the Appellate Assistant Commissioner. It emphasized the Tribunal's authority to permit new grounds in appeals and clarified the irrelevance of including specific income for rate purposes in company taxation. The assessee was directed to pay three-fourths of the costs of the reference.
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